Quote:
Originally Posted by JohnnyJames
All of the above and one factor that has been, thus far, overlooked.
Investors. Behind those mortgage companies (predators and nonpredatory ones) and banks, are the moneymen. When mortgage and RE portfolios and bundled products containing them began to drop in value, they took a hard look at banking and lending practices of the last few years.
The rate of foreclosures began to skyrocket, and probably will continue for some time, leading the investors behind the scenes to tighten the screws on how much exposure they wanted to a dwindling asset. That means less money on the market for new mortgages and less money for existing companies to fund even their day to day operations, things like rent on office space, employees, phones. It was a perfect disaster waiting to happen, created in fact, by the very people who ended up going broke-the mortgage lenders and bankers.
Of course it is a LOT more complicated than that, with hidden players in every corner either counting their losses or licking their wounds.
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You noticed what the banks and brokerage corps are doing now? Decorating what they describe as "prime investments" and repackaging these CDO's and trying to offload them on to unsuspecting investors. When you look at the composition of these bonds - they contain a high percentage of sub-prime mortgage problems and fat chance of an investor actually gaining by purchasing them.
Typical example are CDO-based hedge funds from Bear Stearns which have been reported to be worthless. There is also a rising conflict of interest with rating agencies who value these CDO's - they same rating agencies are supported financially by the industry selling them. Due dilligence is missing.
Bottom line - financial institutions are trying to offload the problem they created on to unsuspecting investors - yet another time-bomb waiting to blow.